When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:
A) be pegged to another currency.
B) be less valuable.
C) have independent float.
D) devalue.

Question

Quizplus · Accepted Answer

When a currency is allowed to increase or decrease freely according to market forces, it is said to have an independent float. This means that the currency's value is determined by supply and demand in the foreign exchange market, rather than being pegged to another currency or subject to government intervention to maintain a specific value. Choice A refers to a fixed exchange rate, where a currency is pegged to another currency or a commodity. Choice B refers to a situation where the currency's value decreases relative to other currencies, but it does not necessarily imply that the currency is allowed to float freely. Choice D refers to a deliberate decision by a government to reduce the value of its currency through intervention in the foreign exchange market.

When a Currency Is Allowed to Increase or Decrease Freely